The Summers Season

Rubin's second in command is poised to take over. But market watchers say it's not a fait accompli.
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The deputy is finally getting the sheriff's badge.

Lawrence Summers

, longtime deputy to the 70th

Treasury

secretary,

Robert Rubin

, looks set to step smoothly into the shoes of his mentor, with little change expected from Rubin's trademark "strong dollar" and Keynesian free-trade policies.

"Summers is trained for and was expected to fill Rubin's shoes. He's more qualified to step into that role than Rubin was when he started" in 1995, says Les Alperstein with

HSBC Washington Analysis

.

Though he is Rubin's hand-picked replacement, Summers has earned a reputation as a combative deputy Treasury secretary, and the former

Harvard

whiz kid could face an uphill battle for approval from Congress later this year, though so far congressional leaders are making approving noises about him.

"Summers has little time to do anything differently," says Brian Wesbury, chief economist at

Griffin Kubik Stephens & Thompson

. "The Treasury is almost on autopilot, and I don't think that's going to get turned off with a new pilot at the controls. We're still at 40,000 feet and cruising."

Take, for instance, Rubin's strong-dollar policy. "The conventional view is that with America's big trade deficit, Treasury should allow our currency to appreciate. Rubin has consistently taken the opposite view. I suspect that's rubbed off" on Summers, says Robert Litan, the

Brookings Institution's

director of economic studies.

In fact, the bigger worry for investors might be Summers' personality -- he has been described by economists, and even some friends, as "prickly," "professorial" and "pompous."

That, and Summers' reputation for off-the-cuff remarks ("he's a blabbermouth, to put it mildly," says one Washington economist), could prove to be his biggest liability when it comes to handling Wall Street and the record U.S. stock market.

"Summers is not as well known as Rubin," says Alfred Kugel, a senior investment strategist at

Stein Roe & Farnham

in Chicago. Summers "has an academic background, not a Wall Street background, but I think he's learned enough from Rubin and will keep following the same policies."

Overseas, one concern will be Japan. "Summers has been in lots of food fights with Japan and lectured them on their banking problems," says Litan. "While he's respected there as an economist, he's also been pretty blunt about telling them what to do."

"Summers' and Rubin's way to get Japan out of its trouble is to expand the government sector, lower interest rates, just like on the blackboard," says Merton Miller, professor emeritus of finance at the

University of Chicago's Graduate School of Business

. "They've been doing it for 10 years, and it hasn't worked."

In addition, "he will be focused on the apparent recovery in the Pacific Rim and in enhancing that recovery; and undoubtedly focused on a recovery in Eastern Europe and the possible repercussion of war in Kosovo to the economies that are closest to that conflict," says Thomas Madden, chief investment officer of equities/high yield at

Federated Investors

in Pittsburgh.

And then there's Brazil. "Clearly he will be focused on Brazil and maintaining financial stability in Brazil as its economy slows," says Madden.

At home, he'll keep an eye on the stock market. "Nobody wants to take charge of a ship just before its hits a mine," says Miller at the University of Chicago. "His prime worry is the collapse of the stock market because he'll probably get blamed for it."

But Will He Get the Job?

Of course, Summers won't get the chance to do any of this if he fails to get confirmed by the Senate.

Phil Gramm, the Texas Republican who heads the Senate

Banking Committee

, already has expressed his desire to work with Summers. And Bill Archer, the Texas Republican who heads the House

Ways and Means Committee

, has made similar comments.

Republicans actually may relish the chance to spar with Summers when haggling over budgetary issues instead of the savvy Rubin.

"I think

Republicans will just rough him up because they can, and he does have a temper," says Chuck Gabriel, political analyst at

Prudential Securities

. "But it's kind of like shadowboxing. The real hope is that the

Congressional Budget Office

by fall will come in with new forecasts for surpluses that will allow Republicans to cut taxes. Instantly, the administration will weigh in with counterpressure, but now they can play that game against Summers instead of Rubin."

However, market watchers and politicos say Summers' confirmation isn't a fait accompli.

In 1994, "the Treasury was encouraging Mexico to devalue and follow

International Monetary Fund

advice to raise taxes, which was not good advice," says Wesbury at Griffin Kubik Stephens. "To be fair, Rubin came on board after that had already begun. Summers was involved in IMF and Mexico more than Rubin."

"The general perception on Capitol Hill is Summers is much more politically engaged than Secretary Rubin is," says Christopher Frenze, chief economist to the vice chairman of the congressional

Joint Economic Committee

, which has no formal role in the confirmation process. "There are questions and concerns about having a secretary of the Treasury who's been as politically involved as Summers, relative to someone like Rubin with his Wall Street experience."

Treasury also was "very much involved in the failed Russian bailout last summer and, of course, the whole thing was a pretty spectacular failure," Frenze notes. "The Treasury was involved in a lot of IMF policies. I would think those are legitimate issues that could arise in a confirmation hearing."

Finally, the question of whether the

Comptroller of the Currency

, a Treasury bureau, fully investigated the Chinese money laundering allegations is "another legitimate issue that may arise in a confirmation hearing," he said.

Frenze notes that Sen. Fred Thompson, a Tennessee Republican, is a member of the

Finance Committee

, which will conduct the confirmation hearings, and also is chairman of the

Government Affairs Committee

that conducted the "Chinagate" investigation last year.

Calls to Sen. Thompson's office and to the press office of the Finance Committee weren't immediately returned.

Staff Reporter David Gaffen and Senior Writer Alison Moore contributed to this article.